AFCA raises concerns over advice sector in systemic issues report

The Australian Financial Complaints Authority (AFCA) has released its bi-annual Systemic Issues Insights Report, which outlines systemic issues identified and markers of excellence observed for the second half of the 2025-2026 financial year.

AFCA's work into investment and advice firms identified concerns on the appropriateness and implementation of advice, authorised representative conduct, client authority and the effectiveness of licensee supervision.

"During the reporting period, matters considered by AFCA raised concerns about inappropriate advice, misleading conduct, unauthorised activity and whether advice appropriately reflected clients' circumstances," AFCA said.

"Other referrals involved complex or higher-risk investment strategies, including self-managed superannuation arrangements and concentrated or illiquid investments."

AFCA also identified concerns about what happens after advice has been provided.

"Advice may begin with an agreed recommendation, but implementation can involve subsequent transactions, portfolio adjustments, discretionary activity or ongoing interaction between the client, adviser and investment platform," AFCA said.

"Where those activities are not supported by clear authority or move beyond the agreed strategy, consumer harm can arise even if the original advice process was appropriately documented."

It highlighted a case where transactions were conducted by an authorised representative on client accounts without appropriate client authority.

"The matter raised broader questions about whether the financial firm had adequate systems and controls to ensure transactions were appropriately authorised and whether its monitoring and supervision arrangements were capable of identifying conduct of this kind," AFCA said.

While the firm characterised the conduct as "isolated and historical", AFCA sought information on controls in place to prevent this in the future, the firm's supervision of representatives and whether it considered if other clients may be impacted.

AFCA remained unconvinced by the information provided by the firm and said the evidence lacked effective preventative controls to ensure transactions occurred only with appropriate client authority, monitoring and supervision arrangements were sufficient to identify similar conduct, and the broader client population had been adequately reviewed to determine whether other consumers may have been affected.

"AFCA did not consider that the firm had demonstrated that the systemic issue was resolved," it said.

"The case highlights that where potentially unauthorised conduct is identified, responding to the individual event may not be sufficient. Effective resolution also requires consideration of whether the control environment could have prevented or detected the conduct and whether a broader group of clients may have been affected."

AFCA added supervision is most effective when it reflects the actual risks arising from the advice and representative activity being undertaken.